MUMBAI: The RBI’s Monetary Policy Committee (MPC) voted 5 to 1 to continue its accommodative stance , with only one member, Jayanth R Varma, casting a dissenting vote .
Underscoring the need for continued support by way of lower interest rates for growth to sustain , RBI governor Shaktikanta Das said, “On balance , headline inflation is expected to peak in Q4: 2021 -22 within the tolerance band (4+/-2 %) and moderate closer to target on H2: 2022-23, providing room for monetary policy to remain accommodative. At the same time , output is just barely above its pre-pandemic level, while private consumption is still lagging . Global headwinds are accentuating . Overall, taking into consideration the outlook for inflation and growth , in particular the comfort provided by the improving inflation outlook , the uncertainties related to Omicron and global spillovers, the MPC was of the view that continued policy support is warranted for a durable and broad-based recovery.”
Governor Das pointed to the prospects for increased food grains production and the expected easing of vegetable prices on fresh winter crop arrivals are “adding further optimism.”
He also cited softening pulses and edible oil prices as likely to continue in response to the strong supply side interventions by the government and increase in domestic production .
Most analysts seem baffled by the lower retail inflation forecast of 4.5% in FY23 , given high oil prices and the fact that Bank of England has already raised interest rates to rein in price inflation fostered by rising crude prices and with the US Fed likely to raise rates next year .
On the other hand , RBI has moved more cautiously on its GDP growth forecast for FY 23 , pencilling in 7.8% against the Economic Survey’s estimate of 8-8.5%.
GDP has been pegged at 7.2 per cent in the first quarter of FY 23 , 7 per cent , 4.3 per cent and 4.5 per cent in the subsequent quarters. As a consequence of the dovish policy , the 10 year bond yield moved back to its per-Budget level of 6.75 per cent , down from a multi year high of 6.95% last week .
The status quo on repo and reverse repo rates at 4 per cent and 3.35 per cent respectively implies banks will leave deposit and lending rates unchanged.